Black and White: Access to Capital among Minority-Owned Startups

We use confidential and restricted-access data from the Kauffman Firm Survey (KFS) and Dun & Bradstreet (D&B) to explore whether minority founders face racial bias when they raise capital for new businesses. Black-owned businesses are persistently smaller and face more difficulty in raising external capital. Large differences in credit worthiness are important for explaining the difference. Even controlling for credit worthiness, persistent differences in perceptions of treatment by banks are also important. Spatial variation in banking conditions and historical attitudes towards race are consistent with racial bias. In contrast, differences in human capital measures, need for capital, business types, and spatial mismatch in banking and clustering contribute relatively little to why black entrepreneurs obtain less financial capital.